The government has received a number of proposals from industry to simplify the capital gains tax structure, with changes expected in the 2023-24 Budget. It must be noted that this is long overdue and pundits have been looking for parity between tax rates and holding periods for equity, debt and real estate investments in every budget announcement.
Experts believe that the current asset class taxation is not unified, and the holding period for capital gains tax is different, which needs to be unified.
during an interview CNBC-TV18Dinesh Kanabar, Chief Executive Officer, Dhruva Advisors; Sudhir Kapadia, National Tax Leader, EY; Nilesh Shah, Managing Director, Kotak Mahindra AMC; and DP Singh, Deputy Managing Director and Chief Commercial Officer, SBI Mutual Funds, on the simplification of capital gains tax and the way forward discussed in detail.
According to Shah, apart from issues related to tenure between debt-equity real estate, issues related to tax rates, and issues related to all the structures that need to be addressed, there are loopholes that need to be plugged.
As of now, investment income is taxed based on a lock-in period or holding period.
Investments in stocks or equity-linked mutual funds for more than a year are considered long-term investments and are taxed at 10% on gains over Rs 1 lakh. Equity investments held for less than one year are considered short-term investments and are subject to a 15% tax.
Kanabar of Dhruva Advisors believes that the government needs to revisit the top marginal rate.
“I don’t think 42% is a rate to be concerned about. Go down to 35 – that’s 30 plus a surcharge and a super rich surcharge. The surcharge can’t be a permanent fixed fee. It has to be used for a specific period of time purpose,” he told CNBC-TV18.
According to Kapadia, attractive tax rates for long-term capital gains are a good thing, while short-term capital gains should be taxed at normal rates.
“We want to encourage more formalization of the economy. It’s good that long-term capital gains have these slightly attractive tax rates, but short-term capital gains have to be taxed as normal income – it’s all over the world, so normal rates apply. So, on capital gains Tax-wise, I don’t think it’s a complex feature,” he said.
Currently, the capital gains tax regime imposes a holding period to determine whether the gain received when an asset is sold is a short-term gain or a long-term gain. Holding periods and tax rates vary by asset class.
For certain assets, long-term capital gains are taxed without indexation or inflation. Experts believe that the same should be revised.
The indicator years for capital gains tax calculations are regularly revised to make them more relevant. The last revision took place in 2017 when the base year was updated to 2001. Since asset prices increase over time, indexation is used to arrive at an inflation-adjusted purchase price for an asset to calculate long-term capital gains. tax.
Bajaj talked about the different capital gains taxes on assets such as equity, debt and real estate.
“Our capital gains tax system is very complex. It needs to be simplified. I’ve said it and I’ll repeat it. We tax different finances differently. We also have different time periods for decisions, short term and long term. In some In some cases we have indexation, in other cases we don’t. All of these need to be cleaned up,” he told CNBC-TV18 in the interview.
For more details, watch the attached video